After year of reforms, rising profits, 2016 promises both progress, pitfalls

By Tu Lei Source:Global Times Published: 2016-1-7 20:03:01

There is never a shortage of news about China's aviation industry.

At the beginning of 2016, the ongoing spat between online airline ticket booking service qunar.com and several major airlines got a lot of attention, hinting that 2016 will be a busy year abuzz with news.

Aircraft queue for takeoff at Chengdu Shuangliu International Airport in Southwest China's Sichuan Province. Photo: CFP



In 2015, we witnessed rapid fleet expansions, rising profits and a soaring number of new routes. As we're only a few days into the new year, we'll have to wait and see what 2016 holds.

The new appointment

At the end of 2015, the Civil Aviation Administration of China (CAAC) announced the appointment of Feng Zhenglin as the new secretary of the Leading Party Group of CAAC, succeeding Li Jiaxiang, who is retiring. Insiders said the appointment could pave the way for Feng to ascend to the head of the CAAC.

Unlike his predecessors, whose backgrounds were in aviation, Feng spent most of his career at the Ministry of Transport. The appointment may be a surprise for the industry, but it also signals more reforms on the way.

Feng took the position at the peak of the anti-corruption campaign within the industry. Many officials and executives from airlines, airports, regulatory agencies and air traffic control bureaus are under investigation.

So, Feng's biggest challenges will be figuring out how to clean up the industry and stop the abuse of power. Introducing a transparent approval system for arrival and departure slots is one way to curtail corruption.

During his term, Feng also needs to figure out how to open up more airspace for civilian use.

As early as 2010, regulators issued guidelines that would eventually open airspace below 4,000 meters to civilian use. Progress, however, has been slow over the past five years.

Although more regions have tried out the policy, regulators have yet to come up with detailed regulations on the matter. They also haven't simplified the procedures to apply for a general aviation license.

It's an important issue. The strict limit on airspace open to civil aviation hinders the development of the aviation industry and hurts the airlines' bottom lines. Frankly speaking, the industry's growth slowed in 2015 compared with previous years.

The slot allocation reform

In December 2015, the CAAC announced it would run pilot programs for slot allocations at Guangzhou Baiyun International Airport and Shanghai Pudong International Airport, employing either a lottery or auction mechanism.

According to CAAC, the auctioned slots are valid for three years, starting from January 31, 2016, during which the airlines will be allowed to exchange, transfer or lease them in the secondary market. Still, the pilot shows the determination of regulators.

At the end of 2015, Guangzhou held its first slot auction. The airport raised more than 550 million yuan by auctioning nine pairs of landing and departure slots. Urumqi Air, a subsidiary of Hainan Airlines, China's fourth largest carrier, made the highest bid for one of the slots - 90.99 million yuan ($13.80 million).

Although the regulator said the pilot program aims to increase the transparency for private airlines competing with the State-owned carriers, most of the winners of the Guangzhou auction were China's major airlines.

At the end of January 2016, Shanghai Pudong International Airport will launch its "ballot plus fee" allocation model for 14 pairs of slots.

It is a positive gesture for the regulator to conduct the pilot program at two busy airports, but the fact is that the pilot program will only affect a fraction of the country's total slots, and most of the auctioned slots still ended up in the hands of the major airlines.

The route expansions

Chinese airlines added route after route in 2015, especially overseas. According to report by news portal http://www.carnoc.com/, 15 Chinese carriers opened over 200 international routes in 2015. By comparison, 33 overseas airlines opened 55 routes in China.

Soaring profits accompanied the rapid expansion. In the first 11 months of 2015, the airline industry's profits surged 76.2 percent year-on-year to 54.76 billion yuan.

Meanwhile, growth of international passenger transport and new international routes rose by more than 30 percent, another record high.

The main reason behind the soaring profits was the low price of jet fuel, the airlines' largest cost.

In 2016, the airlines are expected to continue to expand globally. 

Routes between China and the US will remain hot. Flights from Beijing, Shanghai and Guangzhou to the US could reach 180 per week.

However, whether there will be more flights will depend on an air traffic agreement between the countries.

In 2016, more foreign governments will loosen the visa application requirements. For example, the Australian government is expected to unveil a 10-year multiple-entry visa, and the British government will launch a two-year multiple-entry visa for Chinese travelers, which could stimulate travel to those two countries.

Chinese airlines do face a few potential challenges in 2016.

One is the yuan's exchange rate with the US dollar. Over the first few days of the year, the yuan has continued to weaken against the greenback. A weaker yuan will impact the airlines' bottoms lines because much of their international business is settled in dollars.

The airlines also have a lot debt denominated in dollars, which will become more expense to repay as the dollar strengthens against the yuan.
Newspaper headline: Looking back to see what’s ahead


Posted in: Insight

blog comments powered by Disqus